In a recent Administrative Proceeding, the SEC reports that former broker William Bucci, a resident of Philadelphia, had defrauded friends, families and customers out of $3.2 million and it would hold a hearing to determine his sanctions. Bucci pleaded guilty in 2016 to soliciting personal loans and selling promissory notes to start a business to import olive oil and wine from Italy. Bucci never started that business and, instead used the funds, which carried a promised 10% rate of return, on personal expenditures.

Bucci, 60, apparently carried out the schemes from 2003 to 2011 – at the tail end of a 30-year brokerage career that included stints with the following broker-dealers (per FINRA BrokerCheck): (i) Smith Barney; (ii) Lehman Brothers; (iii) Prudential; (iv) Legg Mason; (v) Gruntal; (vi) Ryan Beck; (vii) Oppenheimer; and, (viii) Financial Network (nka Cetera).

COMMENTARY.    FINRA permanently barred Bucci in 2013 for, among other things, borrowing from unrelated brokerage customers without first getting his employer’s permission, and for failing to disclose unsatisfied judgments on his Form U4.

FINRA could have also cited Bucci for having violated industry rules and employer policies pertaining to ‘Outside Activities’ and ‘Selling Away’. At no point did Bucci ever disclose his ‘fund-raising’ activities to his employers – not that one would have expected his to do so. That said, is there anything that could have been done to possibly prevent Bucci’s dealings with brokerage customers, particularly if his employers had no knowledge of his solicitations?

Without knowing what if any efforts were taken by Bucci’s above-cited broker-dealer employers, Financialish would recommend that each of the firms adopt the practice of issuing bold-type disclosures to their brokerage customers stating that personal transactions between brokers and customers conducted away from the firm are STRICTLY PROHIBITED without prior written consent of the firm. These notices would be most effective if disseminated at least annually and mailed separately from monthly or quarterly customer statements.

Yes, such 'Customer Disclosure Statements' would be viewed as yet another compliance or operational obligation on firms. But the cost would be worthwhile if it can prevent or limit the risk of fraud. The disclosures might also provide added protection to firms – much like the protection offered by a firm’s periodic Compliance Questionnaires. 

We welcome your comments.